Breakout Gap


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Breakout Gap

Using Candlestick patterns as a guide, traders can identify and profit from trading a breakout gap in a stock.
In general terms a breakout gap is a discontinuous pattern in stock charting.

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Breakout Gap

  1. 1. Breakout Gap
  2. 2. Using Candlestick patterns asa guide, traders can identify and profit from trading a breakout gap in a stock.
  3. 3. In general terms a breakoutgap is a discontinuous pattern in stock charting.
  4. 4. It occurs when the prices of stocks break out from anarrow or congested range of trading.
  5. 5. Typically the high stock pricefor the day and the low stock price for the day movegradually up and down day by day.
  6. 6. A break out gap will be whenthe stock price seems to jumpout of the daily pattern, either up or down, out of consolidation pattern.
  7. 7. The common experiencewhen a breakout gap occurs is that the stock will move up rapidly and substantially.
  8. 8. Those who learn to read Candlestick pattern formations will be able toidentify that pattern and will typically be able to trade profitably.
  9. 9. To learn both Candlestick analysis and specific tradingpatterns an excellent idea is to take an online basic stock market training class coupled with the Candlestick forum boot camp online.
  10. 10. There are several types of gaps including runaway gaps,exhaustion gaps, and commongaps, as well as breakout gaps.
  11. 11. In each case stock prices move quickly from a relatively continuous progression up, down, or sideways to a discontinuous jump up or down.
  12. 12. In each case the price jumps leave gaps on stock charts.
  13. 13. Those interested only in long term investing can really dislike gaps, unless the investor also is astute in technical analysis of stocks using Candlestick chart analysis.
  14. 14. Although the long terminvestor will not buy stock andsell stock frequently he or she will be pleased to pick up a stock just before it goes up substantially in price.
  15. 15. The trader, who routinely uses Candlestick charting techniques, will see a breakout gap and realize thathe or she may just be in trader heaven and ready to make a nice profit.
  16. 16. Identification of a breakout gap not only helps stock traders but will be useful tostock options traders as well.
  17. 17. An options trader whoindentifies a breakout gap andreliably predicts a rise in stock price in a timely manner may be able to profit from buying calls on the stock in question.
  18. 18. The difference in buying calloptions instead of the stock is that the trader will hold theoption but not the obligation to buy.
  19. 19. If the stock goes up in price as anticipated the trader will exercise the option for a profit.
  20. 20. If the stock does not go up in price or goes down then thetrader will only lose the price of the premium paid for the option.
  21. 21. In general, the more rare theoccurrence of this kind of gap the more reliable it is.
  22. 22. For example, in a volatile stock market, daily gaps in stock price charting may be rather common.
  23. 23. These, daily, gaps are lesspredictive than gaps that occur over a week.
  24. 24. More so, gaps over a month,or a year can be substantiallymore predictive of large and rapid price moves.
  25. 25. Thus the trader who is astutein reading a breakout gap may be able to profit substantially from the timely purchase of the stock in question.